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Decline in December housing starts

26 February, 2019

Scott Volling
Partner, PwC US

After an almost 6-week delay as a result of the government shutdown, December housing starts were released today. Originally planned for release on January 17th, December starts came in at 1,078,000, almost 11% below December 2017 levels and almost 14% below the consensus number of 1,250,000. Permits fared better at 1,326,000 for the month, slightly higher than both the prior year and prior month results. However, permits were largely driven by a surge in the volatile multi-family segment to 460,000, an 8-month high, while the single family segment fell 2.2% month over month and 5.5% year over year.

For the full year, permits totaled 1,310,700, 2.2% above the 2017 result of 1,282,000 while starts totaled an estimated 1,246,600, 3.6% above the 2017 result of 1,203,000.

While we have seen mortgage rates continue a downward trend and the homebuilder sentiment index increasing from 56 to 62 since the last release of starts and permits 10 weeks ago, December results are seemingly reflective of the trend over the course of 2018 as overall housing affordability dropped as a result of rising rates and rising home prices. Accordingly, the homebuilder sentiment index dropped from 72 in January to 56 in December. While the homebuilding business model does not allow builders to quickly pivot and ramp up starts and permits on a month to month basis (due to the time required for land development, permitting, etc.), the downward trend in rates and decreasing pace of price appreciation over the past several months could bode well for starts and permits as we enter the spring selling season in February and March.

As we look ahead to future release dates, per January and February results will be delayed with both dates currently reflected as “TBD”, with March results expected to resume as planned on April 17, 2019.